The UK’s railways must be properly privatised to minimise delays, reduce overcrowding and ease the burden on the taxpayer. Political interference has prevented privatisation from delivering the expected benefits, whilst the renationalisation of rail infrastructure via Network Rail has been disastrous for passengers and taxpayers alike.

In a new report, Dr Richard Wellings charts the problems beleaguering Britain’s railways, which have been subject to strict regulation, price controls, and a complex artificial structure separating train and track, despite being privatised in the mid-1990s. The root of problems such as poor efficiency and punctuality is attributed to this complex web of state-subsidised firms operating in a heavily regulated market, meaning the sector is neither fully public nor properly private.

Whilst post-privatisation outcomes in terms of fare levels and quality of service have been similar to those achieved in the latter years of British Rail, the additional financial burden on taxpayers and the wider economy has been considerable, with the industry costing taxpayers almost £5 billion in 2014/15. State support for the rail sector is now equivalent to £180 per family in the UK, despite the majority of Britons hardly ever travelling by train.

More worryingly, the true level of government support has been disguised by large increases in Network Rail’s debt, which is likely to surpass £50 billion by 2020, representing a major long-term burden on future generations.

Four areas driving up the cost of railways:

A shift in policy since the mid-1990s towards deterring driving and promoting public transport has encouraged policymakers to direct investment towards poor-value-for-money rail projects.

The complex and fragmented structure imposed on the industry – with different operators owning train and track – has imposed unnecessary ‘transaction costs’. Inefficiencies include large numbers of staff employed to deal with the interfaces between various layers of the industry.

Heavy government regulation, including price controls limiting fare options, has contributed to problems such as overcrowding, creating political pressure for wasteful spending.

The high level of subsidy has encouraged the proliferation of a coalition of special interests that profit directly from state handouts and a regulatory framework that protects their access to them.

Recommendations for reform:

Deregulate the industry. Rail firms should be allowed to introduce flexible pricing, enabling more efficient use of existing capacity and reducing pressure to build expensive infrastructure unnecessarily. They should also be able to close loss-making lines. The resources gained from such a move could then be deployed to higher value uses – for example, improving commercially viable commuter services that are currently overcrowded.

Remove imposed fragmentation. A successful privatisation model would wean the industry off state support and allow its structure to evolve to more cost-effective organisational forms through mergers and demergers. The structure of the rail industry would benefit from a market discovery process, rather than politicians and officials deciding from above.

End wasteful investment. The current anti-car bias of policymakers is costly. Politicians should take a neutral approach, ensuring limited resources are directed to schemes offering the best value for money – whether that be road or rail. Looking more long-term, a return to private investment in infrastructure would help reduce waste.

Commenting on the report, Dr Richard Wellings, Head of Transport at the Institute of Economic Affairs, said:

“The renationalisation of rail infrastructure has proven to be wholly unsuccessful. We now have a hybrid model where despite part-privatisation, the sector has remained heavily dependent on taxpayers’ money, whilst Network Rail’s net debt has quadrupled since its creation.

“We need a successful privatisation model to wean the industry off state support. This would allow private railways to end wasteful investment, introduce flexible pricing and improve efficiency.”

The full report, Without Delay: Getting Britain’s Railways Moving, by Dr Richard Wellings, can be downloaded here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.

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